Thursday October 21, 2004 - 10:39:16 GMT
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INVESTICA Ltd - www.investica.co.uk
Retail data jolts Sterling
The strong retail sales data will curb short-term Sterling selling pressure. International trends will also be important and the dollar vulnerability will support Sterling. Increased doubts over global growth trends will also tend to protect the UK currency. Overall, the Euro offers little immediate value beyond 0.6960 against the Euro, potentially strengthening to 0.6885 in the near term. Sterling is likely to face near-term resistance just above the 1.83 level against the US dollar.
Sterling weakened to a low close to 0.6970 against the Euro, but then recovered back to 0.6925 in New York. Sterling strengthened sharply against the US currency, peaking close to 1.8180. Sterling remained close to this level in early Europe on Thursday before pushing to 1.8240 as the US currency came under fresh selling pressure. The UK data pushed Sterling even higher to near 1.83 against the US currency.
Retail sales growth for September was much stronger than expected with a monthly increase of 1.0%, pushing annual growth to 6.9%. This will jolt markets and it will force some reassessment over recent market confidence that UK interest rates have peaked. This will certainly deter near-term Sterling selling.
Sterling sentiment is likely to switch to a more neutral stance after the retail sales figures and the currency is gaining support from difficulties elsewhere. From a longer-term perspective, the widening budget deficit will cause some concern over structural weaknesses, but it will not be a major short-term focus.
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